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Forex

Euro Recovers Partially Against Dollar After 1% Fall: Russia Gas Cut, US Rate Hike Worries Linger

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Traders are reconsidering their attitude to the dollar after two important events — the Fed meeting and the publication of disappointing GDP. This gives a head start to the other major currencies — the euro and pound sterling. The Japanese yen showed bright dynamics at the end of the week, while the British pound has good potential. The euro is also trying to keep up, especially as there are new arguments for a large-scale and rapid increase in rates by the ECB. Also, the euro and pound sterling should not be underestimated by American businesses.

So, the dollar index fell below 106 on Friday, the lowest in more than three weeks. The U.S. economy is contracting for the second straight quarter, heightening fears of a recession and raising expectations that the Fed will have to slow the pace of rate hikes.

It is worth noting that the dollar has retreated from its 20-year high of 109.3 reached in mid-July, and is on track to decline for the second week in a row.

Dollar bulls are trying to hold off the 106.00 area at the end of the week. If the index breaks above that level, we could see a move to the 2022 high near 109.40. At the same time, an attack of additional weakness could bring the dollar down to 104.70. Therefore, the euro and pound sterling against the dollar strengthened. 

The momentum of the euro growth today was given not only by the weak dollar, but also by the domestic component. GDP growth and inflation reports were released, which surpassed analysts’ estimates. Inflation does not seem to have peaked, as consumer prices accelerated in July to a new record high of 8.9%. Against this background, the difference between the euro and the pound sterling has shrunk. 

What will be the exchange rate between the euro and the pound sterling?

As for economic growth, preliminary data showed a 0.7% quarter-on-quarter increase exceeding market expectations for a 0.2% gain. Reports from France and Spain surprised with growth, while Germany’s economy unexpectedly stalled. On an annualized basis, GDP rose 4% vs. the forecasted 3.4%. Thus, market players have more arguments in favor of a more aggressive approach by the ECB.

How will this help the euro? With a strong dollar and a recession expected in the region next year — nothing. Wells Fargo is pessimistic about the euro’s prospects. They expect the EUR/USD exchange rate to fall to 0.9600 or below. The ECB is likely to have a relatively limited cycle of policy tightening. The situation with a potential recession is exacerbated by restrictions on Russian gas supplies and concerns about rationing of gas consumption in the eurozone this winter.

Economists expect the eurozone economy to shrink by 0.2% in 2023

However, Friday’s data may briefly support the EUR/USD pair, which gained bullish momentum and rose above the key level of 1.0230. The sellers are staying away for now.

If 1.0230 proves to be support, the next target for bulls may be 1.0300 and 1.0370. In case of breakdown of 1.0230 additional losses may be observed in the direction of 1.0200 and 1.0150.

The Euro, as well as the Pound, are the currencies that have had disappointing results this year. However, they can start a strong series of recovery against the dollar if there is more evidence of problems in the U.S. economy.

Is pound sterling the strongest currency today?

GBP/USD will be in the spotlight for the next week and a half. The markets will pay attention to the pound due to the next meeting of the Bank of England. Please be reminded that the previous approach of the CB to increase interest rates (by 25 bps) was strongly criticized as the inflation rate in the UK has grown to a new 40-year high of 9.4%.

Traders now wonder if it will join the rest of the central banks known for raising 50 bps or more on Thursday. It is worth noting that the current situation is far from peak euro pound sterling historical exchange rates. 

If that happens, the GBP/USD might hit 1.2500 by next Friday, especially if the U.S. macro data is weakening in parallel.

Commenting on the current situation, analysts stated that GBP/USD rose for the second week in a row after the exit of the descending wedge pattern upwards. The short-term path of least resistance is directed upward. The pair should strengthen the bullish rush and move higher.

Short-term support, at 1.2090, is expected to keep GBP/USD from a possible failure. 

Forex

Dollar slips ahead of GDP data; euro rises and yen surges

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Investing.com – The U.S. dollar slipped lower Thursday, the euro posted small gains while the Japanese yen climbed to multi-month highs ahead of next week’s Bank of Japan meeting.  

At 05:25 ET (09:25 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, fell 0.2% to 103.950, extending an overnight decline.

Dollar slips ahead of GDP data

The dollar retreated Thursday, extending an overnight decline amid increasing confidence that the will cut interest rates in September.

data for the second quarter are due later in the session, and is expected to show annualized growth of 2.0%.

This would be above the 1.4% growth seen in the first quarter, but would remain considerably slower than the 4.2% pace seen in the second half of last year.

The release will also show inflation slowed considerably last quarter, with the GDP price index falling to 2.6% from 3.1%, ahead of Friday’s price index data, the Federal Reserve’s favored gauge of inflation.

The Fed is set to meet next week, and is widely to keep interest rates steady while signaling a rate cut in September. 

German business morale falls again

In Europe, rose 0.1% to 1.0847, with the euro edging higher despite German business morale unexpectedly falling in July, the third consecutive decline in Germany’s most prominent leading indicator..

The Ifo institute said its sank to 87.0 in July from 88.6 in June.

“The German economy is stuck in the crisis,” said Ifo president Clemens Fuest.

The kept interest rates on hold at 3.75% last week, but markets are pricing in just short of two more ECB rate cuts for the rest of this year.

traded 0.2% lower at 1.2885, falling back from the 1.30 level ahead of next week’s Bank of England policy-setting meeting.

UBS expects the central bank to trim interest rates in what is widely seen as a close call as to when it will start what is likely to be a slow and steady reduction path.

Yen goes from strength to strength 

In Asia, fell 0.7% to 152.72, with the pair falling to its weakest level in 2-1/2 months as traders abandoned short yen bets in the run up to the BOJ’s July meeting in the wake of suspected currency market intervention by the Japanese government.

The is expected to consider a 10 basis point hike, and could unveil a plan to roughly halve bond purchases in coming years.

“USD/JPY has now corrected 6% off its high. This has proved another successful intervention campaign for Japanese authorities,” said analysts at ING, in a note. 

“We think the success of the intervention has had less to do with the size of the FX sales and more to do with the timing. As was the case in September/October 2022, Japanese FX intervention has been timed to coincide with a dovish reappraisal of Fed policy. Very clever.”

slipped 0.5% lower to 7.2281, but remained near an eight-month high amid persistent concerns over a slowing economic recovery in the country. Surprise rate cuts by the People’s Bank added to pressure on the currency and did little to lift spirits over the Chinese economy.

 

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Forex

Investors turn long on Singapore dollar after 7 months; bearish bets on Asian FX ease – Reuters poll

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By Roushni Nair

(Reuters) –

Investors turned bullish on the Singapore dollar for the first time since mid-December as the city-state’s growth and inflation dynamics continue to support the local unit, while bearish bets on most Asian currencies eased, a Reuters poll found on Thursday.

Long positions on the Singapore dollar were at their highest since early April 2023, while bearish bets on the Malaysian ringgit fell to levels seen in April last year, according to a fortnightly poll of 10 analysts.

The Monetary Authority of Singapore (MAS) does not seem to be in a hurry to ease policy settings after a core inflation reading of above 3% in May with growth in the second quarter coming in strong at 2.9%, according to analysts.

MAS will conclude its policy meeting on Friday, with analysts expecting the central bank to maintain its hawkish stance and hold on to its current policy settings even as inflation in June was at a two-year low.

“The strong data (growth and inflation) and the continued appreciation of the SNEER (Singapore dollar nominal effective exchange rate) make us continue to like the SGD on a relative-value basis and against low-yielders in the region,” analysts at Bank of America said in a note.

However, any spike in oil prices due to geopolitical events would exert upside pressure on Singapore dollar’s safe-haven status, they added.

Singapore is among the few countries in the world with a triple-A sovereign credit rating that is reflective of exceptionally strong fiscal and external balance sheets, factors that firm its position as a safe harbor for investors.

Meanwhile, markets have priced in a 100% chance of an interest rate cut by the U.S. Federal Reserve as early as September, with investors awaiting a slew of macroeconomic data, including second-quarter growth figures, to further validate their bets. [FEDWATCH]

Declining interest rates in the U.S. would take the shine off the dollar as it could lead to lower foreign investments while triggering a risk-on sentiment for emerging Asian currencies.

This has resulted in short bets on the Philippine peso and Thailand’s baht also easing significantly.

Bearish positions on the Chinese yuan and the Taiwanese dollar were at their highest since June 27.

Markets in Taiwan extended losses, pressured by statements from Washington last week that hinted at the possibility of tougher curbs for exports of advanced semiconductor technology to China.

Taiwan markets were closed for a second successive day because of bad weather.

The Asian currency positioning poll is focused on what analysts and fund managers believe are the current market positions in nine Asian emerging market currencies: the Chinese yuan, South Korean won, Singapore dollar, Indonesian rupiah, Taiwan dollar, Indian rupee, Philippine peso, Malaysian ringgit and the Thai baht.

The poll uses estimates of net long or short positions on a scale of minus 3 to plus 3. A score of plus 3 indicates the market is significantly long U.S. dollars.

The figures include positions held through non-deliverable forwards (NDFs).

The survey findings are provided below (positions in U.S. dollar versus each currency):

DATE USD/SG USD/ID USD/IN USD/TH

D R R B

25-Jul-24 1.07 0.79 -0.33 0.35 0.86 0.12 0.39 0.43 0.02

11-Jul-24 1.05 0.87 0.06 0.73 0.68 0.22 1.03 0.86 0.51

27-Jun-24 1.34 1.28 0.80 1.49 0.88 0.46 1.00 1.37 0.91

13-Jun-24 0.95 0.87 0.62 1.22 0.64 0.37 1.00 1.23 0.92

30-May-24 1.05 0.72 0.33 0.94 0.53 0.00 0.81 1.19 1.00

16-May-24 1.05 0.96 0.35 0.96 1.02 0.39 1.23 1.29 1.00

2-May-24 1.25 1.61 0.89 1.39 1.40 0.49 1.46 1.44 1.39

18-Apr-24 1.25 1.59 0.80 1.32 1.24 0.43 1.42 1.19 1.28

© Reuters. FILE PHOTO: A Singapore dollar note is seen in this illustration photo May 31, 2017. REUTERS/Thomas White/Illustration/File photo

4-Apr-24 1.18 1.09 0.42 1.13 1.17 0.00 1.15 0.62 1.35

21-Mar-24 0.92 0.82 0.33 0.60 0.92 -0.54 1.12 0.47 1.13

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Forex

US dollar pares losses after economic data

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NEW YORK (Reuters) – The U.S. dollar trimmed losses on Thursday after data showed the the world’s largest economy expanded faster than expected and inflation slowed in the second quarter.

© Reuters. FILE PHOTO: U.S. Dollar banknote is seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

The greenback came off lows against the surging yen and was last down 0.4% at 153.16. It was at 152.68 yen before the data. The was slightly down at 104.32 after the data. It was at 104.21 just before.

Advance estimates showed that gross domestic product grew at a 2.8% annualized rate last quarter. Economists polled by Reuters had forecast GDP rising at a 2.0% rate.

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